Britain risks being plunged into recession this year if Donald Trump escalates his trade war, economists have warned.
The National Institute of Economic and Social Research (Niesr) said growth will be lower and prices higher even if the US president exempts the UK from higher tariffs.
It estimated that blanket 10pc tariffs will see UK growth “fall to zero next year”.
However, the President has suggested he may apply 20pc tariffs globally on goods, which the think-tank warned will be enough to push the UK into recession.
Niesr said: “Our estimates also show that the UK economy is vulnerable to the negative effects of US tariffs through both direct and indirect channels.
“We find that tariffs raise prices and weaken economic activity in the United Kingdom, with the size of the effects depending on the scope of the tariffs. Even if the UK were exempt from these tariffs, economic activity could still suffer due to broader global disruptions.”
Ahmet Kaya at Niesr added: “If the UK faces higher tariffs than 10pc, we could risk entering a recession either this year or next.”
Niesr said a “high tariff” scenario in which all countries were hit with 10pc import tariffs on goods and services, as well as 60pc for China would result in UK stagnation as well as prices rising at more than double the Bank of England’s 2pc target.
Even if only Canada, Mexico and China are hit with higher tariffs, the UK would see weaker growth and higher inflation because of supply chain disruption.
Ms Kaya at Niesr said: “Tariffs, in any form, impose costs on businesses and households, particularly in the country imposing them.
“However, history shows how devastating a full-scale tariff war can be. In today’s highly integrated global economy, such a race to the bottom could disrupt supply chains and send shockwaves across the world, affecting businesses and households far beyond the directly impacted countries.”
It came as Rachel Reeves refused to rule out raising taxes to offset the impact of higher tariffs.
Addressing the Treasury Select Committee, the Chancellor only committed to avoiding another record £40bn tax raid.
She said: “I’m not going to write another four years worth of budgets that would not be responsible. But I can assure the committee that I will not need to repeat a budget on that scale, because we have now wiped the slate clean and put our public finances on [a] firm footing.”
The President is expected to announce the long-awaited escalation in his trade war at an event in the White House Rose Garden as US markets close at 9pm UK time.
Read the latest updates below.
France expects US tariffs to be announced later on European products to be in the range of 20-25pc, risking “major economic disorder”.
Government spokesman Sophie Primas said: “They risk being pretty powerful. People are speaking of tariffs between 20 and 25 percent.
“This will obviously lead to major economic disorder on the products impacted, not only in Europe but also in the United States.”
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The risk of a recession is rising regardless of the UK evading Donald Trump’s tariffs, an economist has warned.
Allan Monks of JP Morgan said US tariffs would only exacerbate Rachel Reeves’ fiscal headroom woes and pile pain on British businesses.
He said: “Even if the UK avoids tariffs, recession risks are rising. Employment prospects have already weakened as businesses adjust to higher domestic taxes.
“But global sentiment appears set to be adversely affected, particularly as a blanket approach to applying tariffs on all countries would amplify the adverse inflation and growth consequences for the US.”
Mr Monks said his team had already lowered its UK GDP forecast by 0.3pc to reflect trade uncertainty and pointed to OBR estimates that a 20pc tariff would shave 0.4pc off growth.
He said: “This could result in a fiscal deterioration over the medium term of around £10bn and wipe out all of the existing headroom around the current rules.
“This would increase the pressure to raise new tax revenue at the autumn Budget.”
Mr Monks said retaliation would likely be limited as Sir Keir Starmer seeks to keep the door open on partial tariff reversal over time.
An absence of material retaliation, paired with weak growth, presents a disinflation risk as surplus goods could be rerouted into the UK market and force prices down.
“Consumers may initially benefit from a disinflationary tailwind, although employment would be adversely affected too,” he said, adding: “It could affect the profitability of UK producers”.
Mexican president Claudia Sheinbaum has said she does not plan to impose retaliatory tariffs on the United States ahead of Donald Trump’s “liberation day” announcement.
However, she said that Mexico will on Thursday “announce a comprehensive program” of measures.
She insisted this would not be “a tit-for-tat on tariffs”.
The Central American nation has been hit with 25pc levies by the US president, in addition to levies on the steel and aluminium sector, and tariffs that came into force today on the car industry.
Britain risks being plunged into recession this year if Donald Trump escalates his trade war, economists have warned.
The National Institute of Economic and Social Research (Niesr) estimated that blanket 10pc tariffs will see UK growth “fall to zero next year”.
However, the President has suggested he may apply 20pc tariffs globally on goods, which the think-tank warned will be enough to push the UK into recession.
Ahmet Kaya at NIESR added: “If the UK faces higher tariffs than 10pc, we could risk entering a recession either this year or next.”
Shareholders in American companies are losing out after bosses hit pause on buybacks.
Companies are wary of using cash to push up their share prices when they are unsure about the effect of tariffs on their profits, researchers say.
A briefing from financial research firm Birinyi Associates said: “In March there was $39.1bn of announced buybacks from 95 different companies. This was the lowest dollar value for a March since 2019.”
Jeffrey Yale Rubin, president of Birinyi Associates, said: “No one knows what will happen with tariffs. So how are corporate executives supposed to plan for cash flows? It’s a lot easier to slow buybacks than cut dividends until companies know more about the trade outlook.”
Meanwhile, US stocks have recovered from their early losses and are in the green in the run-up to Donald Trump’s announcement.
The Dow Jones Industrial Average was up 0.1pc, the S&P 500 gained 0.4pc and the Nasdaq Composite rose 0.2pc.
The FTSE 100 fell today as investors worried that Donald Trump’s latest tariffs could hurt profits.
The internationally focused index lost 0.4pc, having fallen by as much as 1pc in trading.
But the domestically focused FTSE 250 closed up 0.2pc, having fallen as much as 0.9pc earlier today.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Nervousness about an incoming wave of US tariffs has kept the FTSE 100 in the red, as investors assess the UK vulnerability and the knock-on effects for the global economy…
“There won’t be quick retaliation from the UK, with the Prime Minister Keir Starmer underlining his determination to take a pragmatic approach, but this will leave sectors like car manufacturing exposed to the ratcheting up of duties.
“The threat of an escalation of tariffs looms large, with the EU preparing to respond, and there are renewed fears about the impact on global growth. It’s not surprising, given that uncertainty is so high, that gold is hovering at record levels.”
UK growth will grind to a halt next year if Donald Trump escalates his trade war, economists have warned.
The National Institute of Economic and Social Research (Niesr) said growth will be lower and prices higher even if the US president exempts the UK from higher tariffs.
The think tank said: “Our estimates also show that the UK economy is vulnerable to the negative effects of US tariffs through both direct and indirect channels.
“We find that tariffs raise prices and weaken economic activity in the United Kingdom, with the size of the effects depending on the scope of the tariffs.
“Even if the UK were exempt from these tariffs, economic activity could still suffer due to broader global disruptions. In a worst-case scenario where high tariffs are applied, UK GDP growth could fall to zero next year.”
It said a “high tariff” scenario in which all countries were hit with 10pc import tariffs on goods and services, as well as 60pc for China would result in UK stagnation as well as prices rising at more than double the Bank of England’s 2pc target.
Even if only Canada, Mexico and China are hit with higher tariffs, the UK would see weaker growth and higher inflation because of supply chain disruption.
Ahmet Kaya at Niesr said: “Tariffs, in any form, impose costs on businesses and households, particularly in the country imposing them. However, history shows how devastating a full-scale tariff war can be.
“In today’s highly integrated global economy, such a race to the bottom could disrupt supply chains and send shockwaves across the world, affecting businesses and households far beyond the directly impacted countries.”
Donald Trump’s ‘liberation day’ tariffs could hit UK GDP by up to 0.25pc, an economist has warned.
Paul Dales of Capital Economics said he has “some confidence” that rises in US tariffs on UK goods will have a “downward influence on UK GDP”.
He has forecasted the total reduction in GDP from a US blanket tariff at up to 0.13pc for a 10pc duty and a ceiling of 0.25pc for a 20pc duty.
The forecast assumes the tariffs will be placed on all economies, be permanent, that US importers pass them on in full to higher prices for US consumers, exchange rates remain stable and the UK government does not retaliate.
Mr Dales said the tariffs would likely reduce US demand for UK exports, which represented a 0.9pc of UK GDP in 2024, and raise uncertainty.
He added: “There remains a decent chance that at some point in the coming days, weeks or months the US and UK will agree an “economic trade deal” that means any new tariffs are cancelled or watered down.”
Capital Economics has nevertheless tempered this year’s UK growth forecast from 1pc to 0.8pc.
Wall Street’s main indexes have entered positive territory after opening sharply down this afternoon.
The Dow Jones and S&P 500 are both up 0.2pc, while the Nasdaq is up 0.1pc.
But European stocks remain down, with Germany’s Dax down 0.7pc, France’s Cac 40 down 0.4pc and the FTSE 100 down 0.5pc.
Analysts have warned that Wall Street still has some way to drop. John Tully, of Bank of America, has suggested the S&P 500 could be on a path to below 5,500. It is currently at 5,632.
The benchmark index last month hit a formal “correction”, after falling 10pc from its closing high of 6,144.15 in February.
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Trump tariffs news: President prepares for ‘liberation day’ announcement tonight – The Telegraph
